Opinion
G062039 G062227
12-07-2023
TRYAL B. EDMUNDSON et al., Plaintiffs and Appellants, v. JOSE EULOGIO BONILLA, Defendant and Respondent.
Law Offices of Sondra S. Sutherland and Sondra S. Sutherland for Plaintiffs and Appellants. Abir Cohen Treyzon Salo, Boris Treyzon and David S. Bederman for Defendant and Respondent.
NOT TO BE PUBLISHED
Order Filed Date: 12/15/23
Appeal from a judgment of the Superior Court of Orange County No. 30-2019-01117741, Deborah C. Servino, Judge. Reversed in part, affirmed in part, and remanded. Motion for Judicial Notice. Granted.
Law Offices of Sondra S. Sutherland and Sondra S. Sutherland for Plaintiffs and Appellants.
Abir Cohen Treyzon Salo, Boris Treyzon and David S. Bederman for Defendant and Respondent.
ORDER MODIFYING OPINION; NO CHANGE IN JUDGMENT
It is ordered that the opinion filed on December 7, 2023, be modified as follows:
On page 17, before the very last sentence on the page beginning "We do not address any issue" insert the following:
We remand with directions for the trial court to resolve the declaratory relief cause of action and to issue a declaratory judgment on the issues raised in Plaintiffs' declaratory relief cause of action. As this case was fully tried, resolution of the declaratory relief cause of action and the declaratory judgment are to be based only upon the existing evidentiary record; that is the record in this matter to the entry of judgment on August 31, 2022.
On page 35, second line from the top of the page, the word "its" is replaced with "they are" so that the sentence reads: Communications between attorney and client are not only reasonable and necessary, they are required.
Line three and four in the Disposition section, on page 36, delete "grant declaratory relief on the issues raised by Plaintiffs' declaratory relief cause of action;" and insert the following in its place:
based upon the existing evidentiary record, grant declaratory relief and issue a declaratory judgment on the issues raised by Plaintiffs' declaratory relief cause of action;
There is no change in the judgment.
OPINION
SANCHEZ, J.
INTRODUCTION
Tryal B. Edmundson, his wife Osbelia G. Edmundson, and Daniel Perales placed money with Jose Eulogio Bonilla in exchange for his promise that he would pay them, out of his share of profits, a total of 10 percent of the net profits of a partnership if he was successful in his lawsuit against his brothers to claim his 20 percent partnership interest. Bonilla won that lawsuit, but he reneged on his promise to pay Plaintiffs. They sued him, and, after an eight-day trial, the jury found Bonilla to be liable for breach of contract. The jury awarded Plaintiffs damages totaling $980,988.83.
We refer to Tryal Edmundson and Osbelia Edmundson individually by first name and together as the Edmundsons. We refer to Perales and the Edmundsons collectively as Plaintiffs.
Plaintiffs and Bonilla accept the results of the jury verdict. In this appeal, Plaintiffs challenge several rulings and decisions made by the trial court.
We affirm in part and reverse in part. We conclude the trial court did not err by declining to grant specific performance and by denying Plaintiffs' motion for leave to amend to conform to proof at trial. The court erred, however, by denying declaratory relief because the issue raised by Plaintiffs-the rights and responsibilities of the parties going forward-was a proper subject for declaratory relief over which there was an actual controversy. The trial court erred by limiting the scope of a charging order against Bonilla's partnership interest because payments he received in satisfaction of his judgment against his brothers represented net profits of the partnership.
Finally, we reverse the order on Plaintiffs' motion for attorney fees for three reasons. First, the court erred by concluding that not all Plaintiffs were entitled to recover fees. Second, the court set an hourly rate for Plaintiffs' lead counsel that was far lower than the market rate. Third, the trial court did not have a reasonable basis for its dramatic reduction in the number of hours for which Plaintiffs could recover fees.
FACTS
I. El Toro Market Lawsuit and Settlement
Bonilla worked as a manager at El Toro Market, which was owned by a family partnership, until he was locked out in early 2007. In March 2007, Bonilla brought a lawsuit against his brothers/partners in the Orange County Superior Court, Case No. 07CC04418 (the Partnership Lawsuit).
We refer to the family partnership as "the Market" for simplicity and to conform to the nomenclature used by the appellate briefs and investment documents.
In January 2008, Bonilla and his brothers agreed to settle the Partnership Lawsuit. Under the terms of the settlement agreement (the Settlement Agreement), Bonilla received a 20 percent interest in the Market and a corresponding right to 20 percent of its net profits starting on January 7, 2008. Within a few days, Bonilla's brothers reneged on the Settlement Agreement.
II. The Investment Contracts
Bonilla needed funds to pay for legal fees to pursue the Partnership Lawsuit and enforce his right to 20 percent of the Market's net profits. He turned to Plaintiffs because he believed they had the needed funds. He presented his request for funds as an investment opportunity.
A. Perales Contract
Perales was a good friend of Bonilla. Bonilla approached him in October 2008, made an "investment pitch," and presented him with a proposed investor agreement. In November 2008, Bonilla and Perales entered into an agreement by which Bonilla agreed to give Perales 5 percent of the Market's net profits (to be paid out of Bonilla's 20 percent interest) in exchange for a $100,000 investment from Perales. A document titled "Receipt for Investment" states, "Daniel (Dan) Perales is investing $100,000 (one hundred thousand dollars) to Jose (Joe) Eulogio Bonilla, Sr. for El Toro Market &Tortilla Factory ...."
In December 2008, Bonilla and Perales modified this agreement to give Perales 2.5 percent of the Market's net profits in exchange for a $50,000 investment. This agreement had no termination date. As agreed, Perales paid Bonilla $50,000. Bonilla told Perales that payments for his stake in the Market's net profits would continue for Perales's lifetime and Perales would be able to pass his stake to his heirs.
B. Tryal Contracts
Bonilla met with Tryal in November 2008 and offered him an investment opportunity. Bonilla said his brothers had reneged on a settlement agreement that made him a 20 percent owner of the Market and he needed money to pursue litigation against them. Bonilla offered to pay Tryal 1 percent of the Market's net profits (to be paid out of Bonilla's 20 percent interest) in exchange for a $20,000 investment from Tryal. Tryal agreed and paid Bonilla $20,000 in exchange for 1 percent of the Market's net profits.
A document titled "Receipt for Investment" states, "Tryal Edmundson is investing $20,000 (twenty thousand dollars) for 1% (one percent) of Jose (Joe) Eulogio Bonilla's partnership interest at El Toro Market &Tortilla Factory. The receipt for investment also states: "Tryal will begin to receive 1% of Joe's partnership interests once Joe returns to El Toro Market. The payments will be paid quarterly for the life of El Toro Market &El Toro Tortilla Factory ...."
During 2010 and 2011, Tryal invested an additional $68,566.10 (for a total investment of $88,566.10) and in exchange received 5.5 percent interest in the Market's net profits, accumulating from November 6, 2008. Bonilla and Tryal signed two "Promissory Notes", one dated June 30, 2011 and the other dated March 31, 2012. (We refer to these contracts together as the Tryal Contracts.) Both contracts state, "On various dates between 2008 and 2010, Payee [Tryal] invested various amounts of money to Makers to eventually amount to a 5½% (five and one half percent) stake in the net profits of El Toro Market."
The June 30, 2011 contract recites that Bonilla promises to pay $324,831 which represented 5.5 percent of Bonilla's accumulated proceeds from the settlement of the Partnership Lawsuit for the years 2008 through 2011 "based upon a 5.5% (five and one-half percent) ongoing interest" in the Market. (Italics added.) The March 31, 2012 contract similarly recites that Bonilla promises to pay $122,788 which represented 5.5 percent of Bonilla's accumulated proceeds from the settlement of the Partnership Lawsuit for July 1 to December 31, 2011 "based upon a 5.5% (five and one-half percent) ongoing interest" in the Market. (Italics added.)
Both Tryal Contracts state: "Payment is due when Makers have a reasonable ability to pay off the debt or is reasonably able to make payments. Additional amounts shall be added to the total amount due dependent upon the Payee's continued 5.5% (five and one-half percent) ongoing interest in the Business." (Italics added.) Both Tryal Contracts have an attorney fees clause stating, "Makers agree that if any legal action is necessary to enforce this Note, the prevailing party will be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. This provision is applicable to the entire Note."
C. Osbelia Contracts
In May 2010, Bonilla approached Osbelia, who is the sister of his wife, and offered her an investment that would give her 2 percent of the Market's net profits in exchange for "funding and services." At that time, Osbelia had been working for about a month setting up an office for Bonilla at a warehouse he had leased to provide storage for the Market. Bonilla told her the offer was "just like Tryal's" meaning that she would receive 2 percent of the Market's net profits (to be paid out of Bonilla's 20 percent interest), accumulating upon acceptance of the offer, if he was successful in the Partnership Lawsuit. In exchange, Osbelia would provide Bonilla clerical and litigation support services without pay after May 1, 2010.
Osbelia accepted the offer. She made her financial investment by paying $24,753.76 of the start-up and operating expenses for the warehouse. For two years she worked without pay at the warehouse and provided Bonilla litigation support services.
Bonilla and Osbelia signed two contracts (called "Promissory Notes"), one dated June 30, 2011, and the other dated March 31, 2012. (We refer to these contracts together as the Osbelia Contracts.) The June 30, 2011 contract recites that Bonilla promises to pay $93,497 "accumulated" for 2010 and 2011, "based upon a 2% (two percent) ongoing interest" in the Market. (Italics added.) The March 31, 2012 contract similarly recites that Bonilla promises to pay $44,650 representing Osbelia's "portion of the settlement award" accumulated for July 1 to December 31, 2011, "based upon a 2% (two percent) ongoing interest" in the Market. (Italics added.)
Both Osbelia Contracts state: "Payment is due when Makers have a reasonable ability to pay off the debt or is reasonably able to make payments. Additional amounts shall be added to the total amount due dependent upon the Payee's continued 2 % (two percent) ongoing interest in the Business." (Italics added.) Both Osbelia Contracts have an attorney fees clause stating, "Makers agree that if any legal action is necessary to enforce this Note, the prevailing party will be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. This provision is applicable to the entire Note."
Bonilla told both Tryal and Osbelia their investments would give them a good income for life.
D. The Parties' Understanding of the Contracts
Bonilla understood that each plaintiff had made an investment, the investment agreements with Plaintiffs reduced his share of the net profits from the Market, payments were not limited in duration but would continue "for the life of the Market," and the contracts could be passed on to heirs. The following table shows each plaintiff's share of the net profits as a result of the investment agreements:
Plaintiff
Percent of the Market's net profits
As a percent of Bonilla's 20 percent interest
Osbelia Edmundson
2 percent
10 percent
Tryal Edmundson
5.5 percent
27.5 percent
Perales
2.5 percent
12.5 percent
Totals
10 percent
50 percent
Each plaintiff had invested at the risk of recovering nothing and losing the entire investment if Bonilla was not successful in the Partnership Lawsuit.
III. Trial of the Partnership Lawsuit
Bonilla used the money and services invested by Plaintiffs to pursue the Partnership Lawsuit. The litigation was resolved in two phases. In the first phase, the trial court found the January 2008 settlement agreement was enforceable.
In the second phase of trial, the court found that Bonilla's brothers had breached the Settlement Agreement by repudiating the agreement within two days of signing it. The court awarded Bonilla $2,894,450 in damages representing Bonilla's 20 percent share of the Market's net profits from January 7, 2008 through April 30, 2011 and prejudgment interest in the amount of $261,424.80. The court also awarded Bonilla damages of $165,000 representing attorney fees and prejudgment interest on those damages in the amount of $50,491.18. Judgment in the Partnership Lawsuit (the Partnership Lawsuit Judgment) in the total amount of $3,371,765.98 was entered on June 3, 2011. The court later awarded Bonilla attorney fees pursuant to Civil Code section 1717 in the amount of $953,580.75 and other costs in the amount of $8,498.92.
As we explain in part IV of the Discussion section, we grant Plaintiffs' motion for judicial notice of (1) the Partnership Lawsuit Judgment and (2) an order entered on September 6, 2011, granting Bonilla's motion for an order charging his brother's interest in the Market to pay the unsatisfied portion of the Partnership Lawsuit Judgment.
IV. Appointment of Receiver and Distributions to Bonilla
In September 2011, the trial court granted Bonilla's motion to appoint a receiver for the Market to enforce the Partnership Lawsuit Judgment and for a charging order against the partnership interests of Bonilla's brothers. For several years the receiver paid existing debts, including millions of dollars in federal tax liens.
In April 2016, the receiver began making distributions to Bonilla and through 2021 distributed $2,025,000 to Bonilla or paid creditors at his request. An application for renewal of the Partnership Lawsuit Judgment, filed in July 2021, shows that Bonilla had received $2,377,348 toward satisfaction of the judgment. (The difference between the amount distributed to Bonilla or his creditors and the amount credited in satisfaction of the judgment is due to the receiver paying estimated taxes before making the distributions).
V. Bonilla's Failure to Make Payments to Plaintiffs
Despite receiving distributions from the receiver, Bonilla made no distributions to any of the plaintiffs except for a single payment of $4,266.67 to Osbelia and a single payment of $5,333.33 to Perales. Bonilla did not provide any of the plaintiffs with distribution documents, accounting information, profit and loss statements, or tax returns for the Market. Bonilla told Tryal that the Market was not yielding profits and repeatedly told Perales that he had not received any partnership draws from the Market and did not know when he might receive any.
Bonilla's wife let it slip to her sister, Osbelia, that Bonilla had been receiving partnership draws from the Market. As a consequence, the parties met on July 31, 2018, to sort things out. Bonilla admitted he had been receiving partnership draws since 2016. He claimed he had not told Plaintiffs about the draws because "he had been receiving little to nothing, and that the draws were very inconsistent." Bonilla said he now was able to pay Plaintiffs their "percentages" and confirmed his agreement to pay them.
The parties met again on October 11, 2018. At this meeting, the parties signed a memorandum of understanding (MOU) to memorialize the oral agreements made at the July 31 meeting. The MOU states: "At a meeting on 31 July 2018 between Joe and Stella Bonilla, Tryal and Osbelia Edmundson and Danny Perales, it was agreed that since Joe [Bonilla] has been receiving payments from the El Toro Market receiver (Receiver) and now has the ability to make promised payments on various debts, that he will make payments on the following schedule." The MOU confirmed that Bonilla had the present ability to, and would, make payments "[f]rom any and all payments Joe [Bonilla] receives from the Receiver, whether from his 20 [percent] partnership draw or from his court judgment." At the meeting, Bonilla also confirmed he would pay Plaintiffs according to the agreed-upon percentage interest-"'the full amount that we're owed.'"
VI. Written Contract with Perales
Bonilla and Perales formalized and reaffirmed their agreement by signing a a "Promissory Note" dated July 31, 2018, which called for payments once Bonilla began "to receive his partnership draw from" the Market. This contract, which we refer to as the Perales Investment Contract, states, "On various dates during the months of November and December 2008, [Perales] invested a total of $50,0000 (fifty thousand dollars) to [Bonilla] to amount to a 2½% (two and one half percent) stake in the net profits of El Toro Market, Tortilla Factory, and Liquor Store ...." The Perales Investment Contract also states: "Accumulation of the proceeds of this agreement to [Perales] ('Accumulation') shall commence as soon as [Bonilla] starts to receive his partnership draw from [the Market] and payment to [Perales] shall be due within sixty days of the closing of each month's Business's books. Additional amounts shall be added to the total amount due dependent upon [Perales's] continued ongoing Stake in [the Market]." The Perales Investment Contract had no termination date.
The Perales Investment Contract has an attorney fees clause stating: Bonilla "agrees that if any legal action is necessary to enforce this Note, the prevailing party will be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. This provision is applicable to the entire Note."
After Bonilla made single payments to Osbelia and Perales in October 2018, he cut off communication with Plaintiffs and did not pay them anything further.
VII. Bonilla's Stipulation to Amounts Owed
In all of the written contracts, Bonilla stipulated to the following amounts that had accumulated and were owed to the Edmundsons, as follows:
Tryal
2008 through June 30, 2011: $324,831
July 1 through December 31, 2011: $122,788
Osbelia
2010 through June 30, 2011: $93,497
July 1 through December 31, 2011: $44,650
Under Plaintiffs' contracts with Bonilla, each Plaintiff was entitled to his or her respective percentage of the Market's net profits. The amount owed to each plaintiff was calculated by multiplying the Market's net profits shown on income statements by the applicable percentage. Those amounts for each plaintiff were:
Tryal: 2012 through 2021; 5.5 percent of the Market's net profits was $580,573.90.
Osbelia: 2012 through 2021; 2 percent of the Market's net profits was $211,117.78. After deducting the $4,266.67 payment the amount was $206,851.11.
Perales: 2016 (when Bonilla started receiving his partnership draws) through 2021; 2.5 percent of the Market's net profits was $198,897.15. After deducting the $5,333.33 payment, the amount owed was $193,563.82.
PROCEDURAL HISTORY
I. Plaintiffs' Allegations and Claims Against Bonilla
Plaintiffs commenced this lawsuit in December 2019 by filing a complaint against Bonilla and his suspended corporation, El Toro Warehouse, Inc. (El Toro Warehouse). Plaintiffs alleged that El Toro Warehouse was Bonilla's alter ego.
A default was entered against El Toro Warehouse on the second amended complaint. After the jury returned its verdict, a default prove-up hearing for El Toro Warehouse was conducted. The trial court agreed with the jury's interpretation of the breach of contract evidence with respect to the Edmundsons and awarded each of them damages against El Toro Warehouse.
Plaintiffs' second amended complaint, which was filed in July 2021, asserted causes of action for breach of contract, common counts, declaratory relief, and conversion. Plaintiffs alleged: In the Partnership Lawsuit, the court had found that a general partnership had been established and that Bonilla owned a 20 percent interest in the partnership; Plaintiffs had entered into investment contracts with Bonilla by which they paid Bonilla money to fund the Partnership Lawsuit and in exchange he had agreed to give Plaintiffs a cumulative 10 percent interest in the net profits of the Market; payments to Perales were due once Bonilla started receiving his partnership draws from the Market, while payments to the Edmundsons were due when Bonilla was reasonably able to make them; and Bonilla had failed to make the promised payments and cut off all communication with Plaintiffs.
Plaintiffs sought money damages representing their respective shares of the Market's net profits. In the declaratory relief cause of action, Plaintiffs alleged an actual controversy existed because: "a. Bonilla contends the agreements amount to loans which violate the law of usury, whereas Plaintiffs contend they evidence joint ventures between the Plaintiffs and Bonilla, exempt from any claim of usury, and only the contract in favor of Plaintiff Daniel Perales . . . calls for payment of interest. [¶] b. Bonilla contends the payments made to him by Plaintiffs amount to 'failed investments' in his now defunct side business, Defendant El Toro Warehouse, Inc., whereas Plaintiffs contend that they invested in [the Market] (not in El Toro Warehouse, Inc.). [¶] c. Bonilla contends Plaintiffs' investments hinged upon Bonilla taking control of the El Toro Market, while Plaintiffs contend their contracts contain no such contingency."
Plaintiffs sought a judicial declaration that (1) the agreements amounted to a joint venture; (2) they were entitled to a 10 percent share (2.5 percent to Perales, 2 percent to Osbelia, and 5.5 percent to Tryal) of the past and future net profits of the Market; and (3) the payments made by Plaintiffs amounted to investments in the Market and were not conditioned upon Bonilla taking control of the Market.
II. Jury Trial and Verdicts, and the Trial Court's Decision on Equitable Issues
A jury trial was conducted over seven days in June and July 2022. The jury returned special verdicts finding that Bonilla had entered into a contract with each plaintiff and had breached those contracts. The jury awarded damages as follows: Tryal-$580,573.90; Osbelia-$206,851.11; Perales-$193,563.82. With prejudgment interest awarded to the Edmundsons, the total amount of damages came to $996,372.22.
The court also addressed Plaintiffs' equitable claims for declaratory relief and specific performance. In a minute order entered on July 13, 2022, the court found: "Here, Plaintiffs' testimony demonstrated that the agreements were not loans. Significantly, they did not believe that they would receive any payment if Mr. Bonilla's lawsuit against his brothers was unsuccessful. In other words, Mr. Bonilla did not have an absolute obligation of repayment. [Citation.] This is confirmed in the jury's verdicts. The verdicts reflect a determination that it found Plaintiffs' testimony credible that they were entitled to percentages of the net profits of the El Toro Market that would have been paid to Bonilla, from 2012 and on. The verdicts indicated that the jury did not believe that Plaintiffs were entitled to any money from 2008 through 2011. The verdicts also reflect that the jury credited the amounts paid by Bonilla to Osbelia Edmundson and Perales. [Citation.] Accordingly, the usury law is inapplicable to the 2.5 percent for Perales, 2 percent for Osbelia Edmundson, and 5.5 percent for Tryal Edmundson." After reciting those findings, the trial court declined to grant declaratory relief because, "the declaration is unnecessary given that the jury has made determinations on the breach of contract causes of action." The trial court declined to grant specific performance because, the court found, Plaintiffs' legal remedy was adequate.
III. Judgment and Plaintiffs' Motion for Attorney Fees
Bonilla submitted a proposed statement of decision and judgment. Plaintiffs objected to it and requested the trial court make unequivocal and unambiguous findings as to the joint venture relationship between parties and as to Plaintiffs' entitlement to future profits.
The trial court prepared and entered its own statement of decision and a separate judgment. As to declaratory relief and specific performance, the trial court's statement of decision was the same as the July 13, 2022 minute order. Judgment was entered on August 31, 2022.
Before entry of judgment, Plaintiffs filed a motion for contractual attorney fees and for sanctions against Bonilla and his attorney for their alleged failure to comply with court rules. Plaintiffs sought a minimum of $699,799.35 in attorney fees. Bonilla opposed the motion on the grounds no party had prevailed and the amount of fees sought was unreasonable. The trial court concluded that Plaintiffs were entitled to recover attorney fees, but for reasons explained in part V of the Discussion section, awarded only $198,445.
On the day the judgment was entered, Plaintiffs filed a motion to charge Bonilla's share of the profits and right to receive distributions from the Market and to appoint a receiver of Bonilla's share of profits and distributions for satisfying the judgment. The receiver did not oppose the motion; Bonilla did. In January 2023, the trial court granted Plaintiffs' motion and issued a charging order as to Bonilla's distribution rights based on his 20 percent interest in the Market.
Plaintiffs filed a notice of appeal from the judgment and a separate notice of appeal from the order on attorney fees and the charging order. On stipulation of the parties, we ordered consolidation of the two appeals for all purposes.
DISCUSSION
I. The Trial Court Did Not Err by Denying Specific Performance
Plaintiffs requested specific performance of the investment contracts "as there is no adequate remedy at law for an award of future net profits." The trial court denied specific performance of the investment on the ground that damages are an adequate remedy for their breach. We agree.
Specific performance of a contract may be decreed whenever: (1) the contract terms are sufficiently definite; (2) the consideration is adequate; (3) the requested performance is substantially similar to the contract terms; (4) there is mutuality of remedies; and (5) the plaintiff's legal remedy is inadequate. (Union Oil Co. of California v. Greka Energy Corp. (2008) 165 Cal.App.4th 129, 134.) A court's decision to grant or deny the remedy of specific performance is discretionary and reviewed under the abuse of discretion standard. (Petersen v. Hartell (1985) 40 Cal.3d 102, 110.)
Specific performance will not be decreed if the legal remedy of damages is adequate: "[T]he exclusive jurisdiction of equity to grant relief by way of specific performance of a contract will be exercised only in those cases where the legal remedy of compensatory damages is insufficient under the circumstances of the case, in the opinion of the court, to do complete justice between the parties." (Morrison v. Land (1915) 169 Cal. 580, 586; see Wilkison v. Wiederkehr (2002) 101 Cal.App.4th 822, 830, 833; 13 Witkin, Summary of Cal. Law (11th ed. 2017) Equity, § 25, pp. 309-310.)
In the present case, money damages were an adequate legal remedy because money was the only thing that Plaintiffs hoped to gain from the performance of the investment contracts. Plaintiffs gave Bonilla money and in return expected to receive money. Thus, "[a]n ordinary action at law for breach of the contract would bring [them] the very thing to which [they are] entitled under the allegations of [the] complaint." (Morrison v. Land, supra, 169 Cal. at p. 590.)
II. The Trial Court Erred by Denying Declaratory Relief
The trial court erred by declining to grant Plaintiffs request for declaratory relief. As we shall explain, this was the quintessential case in which declaratory relief is necessary and proper.
Code of Civil Procedure "section 1060 authorizes actions for declaratory relief under a 'written instrument' or 'contract.' Declaratory relief generally operates prospectively to declare future rights, rather than to redress past wrongs. [Citations.] It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs. In short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them." (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.) To obtain declaratory relief, a party must demonstrate its lawsuit satisfied two elements: (1) the claim presented is a proper subject of declaratory relief, and (2) there is an actual controversy involving justiciable questions relating to the party's rights or obligations. (Ibid.)
Issues relating to the construction and effect of a contract are proper subjects for declaratory relief. (Fowler v. Ross (1983) 142 Cal.App.3d 472, 478.) Here, the declaratory relief cause of action neatly framed issues relating to the construction of the investment contrasts; most importantly, Bonilla contended the agreements are loans that violated the usury laws while Plaintiffs contended the agreements evidence a joint venture exempt from usury laws and entitled to a total 10 percent share of the past and future net profits of the Market.
The breach of contract causes of action only sought damages for past breaches of the investment contracts: The declaratory relief cause of action sought a declaration of the parties' future rights precisely to avoid future repudiation of obligations, invasion of rights, or commission of wrongs.
There was, and remains, an actual controversy between Plaintiffs and Bonilla regarding the meaning and interpretation of the investment contracts. The controversy was concrete, was actively litigated, and remains unresolved. In the respondent's brief, Bonilla vigorously argues the investment contracts did not create a joint venture-proof positive an actual controversy remains.
Code of Civil Procedure section 1060 must be read with Code of Civil Procedure section 1061, which states: "The court may refuse to [grant declaratory relief] in any case where its declaration or determination is not necessary or proper at the time under all the circumstances." Citing Code of Civil Procedure section 1061 and Hood v. Superior Court (1995) 33 Cal.App.4th 319 (Hood), the trial court found that declaratory relief was neither necessary nor proper because "[t]he remaining issues invoked in the declaratory relief cause of action already are fully engaged by the other causes of action determined by the jury" and "the jury has made determinations on the breach of contract causes of action" and therefore "declaratory relief is unnecessary and superfluous."
The trial court's and Bonilla's reliance on Hood is misplaced. The claims in Hood were based entirely on past conduct; the issues raised were whether such past conduct constituted breaches of the agreement, its noncompetition clause, or its termination clause. Declaratory relief was not requested as a guide to the future conduct in performing ongoing contractual obligations. In the present case, the breach of contract causes of action sought remedies for past conduct while the declaratory relief cause of action sought guidance for future conduct. It was permissible for Plaintiffs to seek redress for past breaches and a declaration of future rights and obligations.
The trial court erred legally by concluding declaratory relief was unnecessary because "the jury has made determinations on the breach of contract causes of action." Only the trial court may resolve legal issues, such as whether the investment contracts created a joint venture (Hodges v. County of Placer (2019) 41 Cal.App.5th 537, 546 [whether a fiduciary relationship exists is a question of law]), and only the trial court may issue a declaratory judgment (Code Civ. Proc., § 1060). The judgment, which incorporates the jury's findings, therefore could not serve as a substitute for a declaratory judgment.
Although the trial court's decision whether to grant declaratory relief is reviewed for abuse of discretion, that discretion "is not boundless." (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647.) When, as in the present, a complaint presents a legally sufficient declaratory relief cause of action and the circumstances establish that a declaratory adjudication is appropriate, the trial court may not deny relief. (Ibid.)
We do not address any issue raised by the declaratory relief cause of action.
III. The Trial Court Did Not Err by Denying Leave to Amend to Conform to Proof
A. Background
Plaintiffs contend the trial court erred by denying their requests for leave to amend the complaint to add a cause of action for breach of fiduciary duty. We conclude the trial court did not abuse its discretion by denying those requests.
In the second amended complaint, Plaintiffs asserted a conversion cause of action alleging they had formed a joint venture with Bonilla for the single purpose of realizing profits from his 20 percent interest in the Market. Plaintiffs alleged this joint venture gave rise to fiduciary duties, but they did not assert a breach of fiduciary duty cause of action against Bonilla.
In October 2021, the trial court sustained, without leave to amend, Bonilla's demurrer to the conversion cause of action on the ground Plaintiffs had failed to allege that Bonilla interfered with their possessory interest in a specific identifiable sum. In April 2022, just before the trial was scheduled to commence, Plaintiffs filed a "motion in limine" for leave to amend their complaint "to conform to proof" to add a cause of action for breach of fiduciary duty based on a theory the investment contracts had created a joint venture. With the motion, Plaintiffs served the proposed amended complaint and proposed jury instructions. In opposing the motion, Bonilla argued that Plaintiffs were not diligent in seeking leave to amend and that he would suffer prejudice from granting leave to amend in that he had prepared for trial with the understanding this was purely a contract action with no punitive damages.
In June 2022, at the commencement of trial, the court denied the motion for leave to amend without prejudice. The court considered various factors, including the timing of the motion and Plaintiffs' diligence, and found they weighed against allowing leave to amend. The court stated that allowing leave to amend would "change significantly the legal landscape down to even things such as availability of punitive damages ...."
During trial, Plaintiffs' counsel renewed the motion for leave to amend to add a breach of fiduciary duty cause of action. Plaintiffs' counsel argued the evidence regarding a breach of fiduciary duty cause of action was "already before the court" in that the breach of fiduciary duty claim had been presented as far back as July 2021. Counsel argued that for the same reason none of the fiduciary duty allegations "should come as a dramatic or large surprise to defendant." Bonilla's counsel argued an amendment would be prejudicial because (1) Bonilla would not have the opportunity to challenge the pleadings, (2) discovery was not conducted on a breach of fiduciary duty cause of action, (3) Bonilla would not have the opportunity to retain experts on fiduciary duties, and (4) Plaintiffs had not proven they had a fiduciary relationship with Bonilla.
The trial court denied the motion for leave to amend to conform to proof and gave these reasons for its ruling: "The court finds that [the proposed amendment] changes the legal landscape of the case significantly. That had [Bonilla] asked for time to conduct discovery, the court would get it. You're talking about changing it from a breach of contract case to a tort case, with all of the different remedies involved. And given the timing and how everything had occurred, the court is going to find that [Bonilla] has shown prejudice."
B. Relevant Law
"The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading . . . in any . . . respect." (Code Civ. Proc. § 473, subd. (a)(1).) The trial court's ruling on a motion to amend a pleading is reviewed under the abuse of discretion standard. (Duchrow v. Forrest (2013) 215 Cal.App.4th 1359, 1377.) "The test for abuse of discretion is traditionally recited as whether the trial court's decision exceeded the bounds of reason. [Citation.] In more practical terms, the abuse of discretion standard measures whether, in light of the evidence, the trial court's decision '"falls within the permissible range of options set by the legal criteria."'" (Deck v. Developers Investment Co., Inc. (2023) 89 Cal.App.5th 808, 824.) "A trial court's decision is an abuse of discretion if it is based on an error of law." (Ibid.)
The trial court's discretion to grant leave to amend, though wide, must be exercised in accordance with the principle that leave must be liberally granted at any stage of the litigation, when no prejudice to the opposing party is shown. (Duchrow v. Forrest, supra, 215 Cal.App.4th at p. 1377.) The court must consider several factors, including the conduct of the party seeking leave to amend and that party's diligence in presenting the amendment. (Ibid.) An unwarranted delay in seeking an amendment is in itself a valid reason for denying leave to amend, even if the proposed amendment is in proper form. (Ibid.)
When leave is requested during trial, several other principles guide the trial court's discretion. "Where the trial date is set, the jury [has been] impaneled, counsel, the parties, the trial court, and the witnesses have blocked the time, and the only way to avoid prejudice to the opposing party is to continue the trial date to allow further discovery, refusal of leave to amend cannot be an abuse of discretion." (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 488.)
C. Plaintiffs' Delay and the Addition of a Tort Claim Justified Denying Leave to Amend
When the trial court denied leave to amend in June 2022, it was justified in finding that Plaintiffs had delayed seeking leave to add a breach of fiduciary duty claim. In the proposed breach of fiduciary duty cause of action, Plaintiffs alleged they discovered Bonilla's "wrongdoing" in mid-2018. As early as April 2021, Plaintiffs alleged in the declaratory relief cause of action of the first amended complaint that the investment contracts created a joint venture. Plaintiffs did not allege then that Bonilla had violated his fiduciary duties as a joint venturer and did not assert a breach of fiduciary duty cause of action. In the second amended complaint, which was filed in July 2021, Plaintiffs alleged in the conversion cause of action they had formed a joint venture with Bonilla that gave rise to fiduciary duties owed by Bonilla, but again, Plaintiffs did not formally allege a breach of fiduciary duty cause of action.
The trial court removed any tort recovery in October 2021 by sustaining without leave to amend Bonilla's demurrer to the conversion cause of action. Plaintiffs did not seek leave to add a breach of fiduciary duty cause of action until April 2023 (by means of a motion in limine). Due to these delays, the trial court's decision to deny leave (without prejudice) fell within the permissible range of options set by the legal criteria.
Likewise, the trial court did not abuse its discretion in denying Plaintiffs' renewed motion for leave to amend to conform to proof that was made in the midst of trial. Although it appears the facts used to prove breach of contract were the same as the facts constituting the alleged breach of fiduciary duty, an amendment would have injected a tort cause of action into the proceedings midtrial. As the trial court found, the proposed amendment would "change the legal landscape of the case significantly" by transforming the case from "a breach of contract case to a tort case, with all of the different remedies involved." At trial, it was too late for Bonilla to retain an expert to testify as to whether his conduct constituted a breach of fiduciary duty. (See O'Neal v. Stanislaus County Employees' Retirement Assn. (2017) 8 Cal.App.5th 1184, 1215 ["Expert testimony demonstrating a breach is not required; but is admissible in circumstances where the conduct supporting the alleged breach is beyond common knowledge"].)
And there is the matter of delay, which is a factor for the court to consider in deciding whether to grant leave to amend to conform to proof. (Duchrow v. Forrest, supra, 215 Cal.App.4th 1359, 1378-1379.) As we have explained, Plaintiffs delayed in seeking leave to amend to add a breach of fiduciary duty cause of action, and that delay justified the trial court's decision to deny leave to amend.
In sum, transformation of the case from breach of contract to tort, including a claim for punitive damages, along with Plaintiffs' delay in asserting a formal breach of fiduciary duty cause of action, meant that denial of leave to amend to conform to proof fell within the permissible range of options open the trial court.
IV. The Charging Order Must Be Modified to Include Distributions from the Partnership Lawsuit Judgment
The trial court granted Plaintiffs' motion for a charging order against Bonilla's 20 percent interest but excluded those distributions which Bonilla had received from the Partnership Lawsuit Judgment. We agree with Plaintiffs the trial erred by excluding those distributions.
A judgment creditor's ability to enforce the judgment by means of a charging order against a judgment debtor's partnership interest is authorized by both the Code of Civil Procedure and the Corporations Code. Code of Civil Procedure section 708.310 (section 708.31) provides in relevant part, "If a money judgment is rendered against a partner or member but not against the partnership or limited liability company, the judgment debtor's interest in the partnership or limited liability company may be applied toward the satisfaction of the judgment by an order charging the judgment debtor's interest ...." Under Corporations Code section 16503, "[a] transferee of a partner's transferable interest in the partnership has the right" "[t]o receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled." (Id., subd. (b)(1).) The transferrable interest of a partner may be subject to a charging order to satisfy a judgment, and "[t]he court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership ...." (Corp. Code, § 16504, subd. (a).)
The trial court found that Plaintiffs were not entitled to distributions made pursuant to the Partnership Lawsuit Judgment because "a charging order is limited to distributions based on Defendant's 20% interest ...." The court erred in so finding because, as shown by the Partnership Lawsuit Judgment, the distributions received by Bonilla pursuant to the Partnership Lawsuit Judgment were based on his 20 percent partnership interest in the Market.
The Partnership Lawsuit Judgment confirms that since January 2008, Bonilla had owned a 20 percent interest in the Market and since that date had been entitled to 20 percent of the Market's net profits. The Partnership Lawsuit Judgment awarded Bonilla damages based on his share of the net profits of the Market from January 7, 2008 through April 30, 2011 in the amount of $2,894,450.
Before trial started, Plaintiffs filed a request for judicial notice of a series of documents, including the Partnership Lawsuit Judgment. The trial court denied the request for judicial notice on the ground that documents filed with the court cannot be judicially noticed. During trial, Plaintiffs renewed their request for judicial notice of the Partnership Lawsuit Judgment. The court did not change its prior ruling. Later during trial, the court again declined to take judicial notice of the Partnership Lawsuit Judgment on the ground that "the court cannot judicially notice facts."
The trial court erred by declining to take judicial notice of the Partnership Lawsuit Judgment because it is a record of a court of the State of California and was directly relevant to the primary issue presented by this litigation. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).) A court may take judicial notice of "orders, findings of facts and conclusions of law, and judgments within court records." (In re Vicks (2013) 56 Cal.4th 274, 314.) Although the court may not take judicial notice of the truth of hearsay statements in the court files, judicial notice may be taken both of the existence of the court records and "the truth of the results reached" in those records. (Ibid., italics added; see Hart v. Darwish (2017) 12 Cal.App.5th 218, 224-225 ["a court's ruling and the basis for that ruling constitute official records excepted from the hearsay rule"].) Thus, judicial notice could and should have been taken not only of the fact there is a Partnership Lawsuit Judgment, but of the truth of the results reached in that judgment; e.g., the amount of the judgment is true and correct, the judgment was against Bonilla's brothers, the court determined that Bonilla had owned 20 percent interest in the Market since January 2008, and the damages awarded were for Bonilla's 20 percent share of the net profits of the Market from January 2008 through April 2011.
Plaintiffs have brought a motion that we take judicial notice of the Partnership Lawsuit Judgment and of an order entered on September 6, 2011, granting Bonilla's motion for an order charging his brothers' interest in the Market to pay the unsatisfied portion of the Partnership Lawsuit Judgment (the Charging Order). We grant the motion. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).)
As transferees of 50 percent of Bonilla's partnership interest in the Market, Plaintiffs were entitled to "distributions to which the transferor [Bonilla] would otherwise be entitled" (Corp. Code, § 16503, subd. (b)(1)), which would include Bonilla's share of unpaid net profits. Because those unpaid net profits were awarded as damages by the Partnership Lawsuit Judgment, Plaintiffs are entitled to distributions from funds obtained in satisfaction of the judgment in the present lawsuit. We therefore reverse that portion of the charging order excluding damages from the Partnership Lawsuit Judgment and remand with directions to modify that order to include those damages.
V. The Trial Court Erred by Awarding Plaintiffs an Unreasonable Low Amount of Attorney Fees.
In their motion for attorney fees, Plaintiffs sought $699,799.35 based on the attorney fee provisions in the Perales Investment Contracts, the Tryal Contracts, and the Osbelia Contracts. Of the amount requested, the trial court awarded only $198,445. We conclude the trial court erred by awarding such a low amount. As we shall explain, the trial court erred by concluding the Edmundsons were not entitled to recover attorney fees, setting a below-market hourly rate for Plaintiffs' lead counsel, and cutting an unreasonably high number of hours of counsel's time.
A. The Edmundsons Were Entitled to Recover Attorney Fees
The trial court concluded Perales was entitled to recover attorney fees pursuant to the fee provision in the Perales Investment Contract but the Edmundsons were not entitled to recover fees because the jury did not award them damages based on the contracts they signed. The trial court explained its ruling as follows: "The jury's verdicts reflected a determination that the jury found Plaintiffs' testimony credible that they were entitled to percentages of the net profits of the El Toro Market that would have been paid to Bonilla, from 2012 and on. The verdicts also indicated that the jury did not believe that Plaintiffs were entitled to any money from 2008 through 2011. [Citation.] These verdicts were largely consistent with Perales' promissory note, which only referred to the initial investment and required payment of accumulation of proceeds "as soon as Maker starts to receive his partnership draw from Business ....' [Citation.] Perales has shown that he prevailed on a contract that contained an attorney fee provision. In contrast, the jury's verdicts were not consistent with Tryal and Osbelia Edmundson's promissory notes. Those promissory notes specifically recited to funds in 2008 through 2011 for Tryal Edmundson and 2010 and 2011 for Osbelia Edmundson. [Citation.] Tryal and Osbelia Edmundson have not shown that they prevailed on agreements that contained attorney's fees clauses. Plaintiffs argued that the oral agreements and the written agreements were all part of the same transaction. At trial, Tryal Edmundson testified that the promissory notes [citation] superseded oral agreements between the Edmundsons and Bonilla. The jury's verdicts rejected that testimony. Tryal and Osbelia Edmundson's promissory notes, on their face, did not necessarily relate to the same matters as the oral agreements. Moreover, Tryal Edmundson testified that he had separate promissory notes with Bonilla that were not part of this action. As the California Supreme Court explained, although multiple contracts relating to the same matters are to be construed together, it does not follow that they constitute one contract for all purposes."
The trial court found that attorney fees could not be apportioned between Perales and the Edmundsons because "the liability of Bonilla to Plaintiffs was factually interrelated that it would have been impossible to separate the activities into compensable and noncompensable time units."
Although an order granting or denying a motion for attorney fees is reviewed under the abuse of discretion standard (Leiper v. Gallegos (2021) 69 Cal.App.5th 284, 291), the issue of a party's entitlement to attorney fees is a legal issue which is subject to de novo review (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175-1176; Apex LLC v. Korusfood.com (2013) 222 Cal.App.4th 1010, 1016). "[W]e independently review the legal basis for an attorney fee award." (R.W.L. Enterprises v. Oldcastle, Inc. (2017) 17 Cal.App.5th 109, 1025.) "The normal rules of appellate review apply to an order granting or denying" a motion for attorney fees. (Apex, at p. 1017.)
Whether the Edmundsons are entitled to recover attorney fees depends upon the meaning and scope of the Tryal Contracts, the Obelia Contracts, and their oral contracts with Bonilla. Appellate rules for contract interpretation are as follows: An appellate court independently construes a contract when no extrinsic evidence is introduced or when the extrinsic evidence is not in conflict. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955.) "When the competent extrinsic evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld if it is supported by substantial evidence." (Id. at p. 956.) "The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting. [Citations.] When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. [Citation.] 'The words of a contract are to be understood in their ordinary and popular sense.'" (Id. at p. 955.)
"In determining whether a contract contains an applicable attorney fees provision, courts have 'construe[d] together several documents concerning the same subject and made as part of the same transaction [citations] even though the documents were not executed contemporaneously [citation] and do not refer to each other.'" (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 759.)
In considering attorney fees, it was necessary for the trial court to construe the oral agreements between the Bonilla and the Edmundsons together with the Tryal and Osbelia Contracts because they are all part of the same transaction. The court's conclusion that the Tryal and Osbelia Contracts on their face do not relate to the same matters as the oral agreements is erroneous. The Tryal Contracts expressly state, "On various dates between 2008 and 2010, Payee [Tryal] invested various amounts of money to Makers to eventually amount to a 5½% (five and one half percent) stake in the net profits of El Toro Market." The Tryal Contracts restate and confirm the terms of the oral agreements by reciting Bonilla's promise to pay the specified sums based on Tryal's 5.5 percent "ongoing interest" in the Market. The Osbelia Contracts likewise confirm the terms of the oral agreement by reciting Bonilla's promise to pay the specified sums based on Osbelia's two percent "ongoing interest" in the Market.
A significant way in which the Tryal Contracts and the Osbelia Contracts relate to and incorporate the terms of the oral contracts is the recitation in each of them that "[a]dditional amounts shall be added to the total amount due dependent upon the Payee's continued . . . ongoing interest in the Business." We construe this sentence to mean the parties intended that future sums owed by Bonilla to the Edmundsons as their respective shares of the Market's net profits would be added and become subject to the Tryal and Osbelia Contracts.
This construction of the Tryal and Osbelia Contracts has two significant implications. First, the net profits from the Market that were owed to the Edmundsons from 2012 onward were added to the Tryal and Osbelia Contracts and became subject to their attorney fees provisions. Second, the jury verdicts, which awarded only an amount of damages equal to the Edmundsons' share of the Market's net profits from 2012 onward, were not inconsistent with the Tryal and Osbelia Contracts and did not preclude an award of attorney fees pursuant to their attorney fees provisions.
The jury awarded Plaintiffs' damages precisely in the amount of their respective percentage interests in the Market's net profits from 2012 forward, less payments received from Bonilla. The jury declined to award as damages the face amounts of the Tryal and Osbelia Contracts, which were for net profits from 2008-2011 (Tryal) and 2010-2011 (Osbelia). The trial court found those verdicts showed that the jury rejected Tryal's testimony that the written contracts superseded the oral ones. But if the written contracts did not supersede the oral ones, then the jury would have awarded damages based on the net profits for the years 2008 through 2011 for breach of the oral contracts. It is also possible, as Plaintiffs claim, that the jury awarded damages for breach of the written contracts but was not persuaded by the rough estimates of net profits for 2008 through 2011 in comparison to the precise calculations for 2012 through 2021.
Interpreting jury verdicts can be challenging, and sometimes juries make decisions that do not completely make sense or square nicely with the evidence and theories presented at trial. We believe the most reasonable interpretation of the jury verdicts in the present case is that the jury awarded the Edmundsons damages for breach of the Tryal and Osbelia Contracts and declined to award damages for net profits from before 2012 on the ground (partly mistaken) that those arose from breach of the oral contracts or due to the state of evidence on those damages.
Thus, we conclude the Edmundsons were entitled to recover attorney fees pursuant to the attorney fee provisions in the Tryal and Osbelia Contracts.
B. The Hourly Rate Set by the Trial Court for Plaintiffs' Lead Counsel Was Erroneously Low
Plaintiffs challenge the amount of the attorney fees award, which they describe as "shockingly low," on the ground the trial court, in calculating a lodestar amount, set a below-market hourly rate of $345 for their lead counsel, Sondra S. Sutherland.
We start with some legal background on calculating the amount of an award of attorney fees. Lodestar is the presumptive method for calculating the amount of an attorney fees award. (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1132.) "[T]he lodestar is the basic fee for comparable legal services in the community." (Ibid.) Lodestar has two components: (1) the number of hours reasonably expended and (2) the reasonable hourly rate of the legal professional. Lodestar is the "the number of hours reasonably expended multiplied by the reasonable hourly rate." (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 (PLCM) [listing lodestar factors].) The lodestar figure may then be adjusted, based on a consideration of various factors, "to fix the fee at the fair market value for the legal services provided." (Ibid.)
The trial court's determination of a reasonable hourly rate and the number of hours reasonably expended-the two components of the lodestar number-is reviewed under the abuse of discretion standard. (PLCM, supra, 22 Cal.4th at p. 1095.) "At the same time, discretion must not be exercised whimsically, and reversal is appropriate where there is no reasonable basis for the ruling or the trial court has applied 'the wrong test' or standard in reaching its result. [Citation.] . . . [Citation.] Thus, in attorney fee determinations such as this one, the exercise of the trial court's discretion 'must be based on a proper utilization of the lodestar adjustment method, both to determine the lodestar figure and to analyze the factors that might justify application of a multiplier.'" (Nichols v. City of Taft (2007) 155 Cal.App.4th 1233, 1239-1240.)
The reasonable hourly rate for an attorney's service is the market rate, that is, the hourly rate "prevailing in the community for similar work." (PLCM, supra, 22 Cal.4th at p. 1095.) In making its calculation, the court should consider the experience, skill, and reputation of the attorney requesting fees. (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 1009.) The hourly rate set by the trial court must be "within the range of reasonable rates charged by and judicially awarded comparable attorneys for comparable work." (Children's Hospital &Medical Center v. Bonta (2002) 97 Cal.App.4th 740, 783.)
The trial court set Sutherland's hourly rate at $345. The court provided no explanation except to say that rate was "reasonable." Although the trial court has discretion to fix an hourly rate, the court's decision must "'"fall[] within the permissible range of options set by the legal criteria"'" and must be supported by substantial evidence. (Deck v. Developers Investment Co., Inc., supra, 89 Cal.App.5th at p. 824.) The trial court's decision here does neither.
Sutherland's hourly rate of $345 is the rate at which she billed clients. It is the attorney's market rate, not the rate charged to the client, that controls in determining the amount of the lodestar. (PLCM, supra, 22 Cal.4th at p. 1096; Pasternak v. McCullough (2021) 65 Cal.App.5th 1050, 1055-1056; Syers Properties III, Inc. v. Rankin (2014) 226 Cal.App.4th 691, 702-703 ["[t]here is no requirement that the reasonable market rate mirror the actual rate billed"].)
No evidence was presented to support a finding that $345 was within the range of market rates. Plaintiffs submitted unrebutted evidence establishing the $345 was far below the market range of rates. In support of their motion for attorney fees, Plaintiffs submitted a detailed declaration from Sutherland. She declared that she had been a practicing attorney for 26 years, and, before becoming an attorney, worked for six years as a legal secretary followed by eight years as a paralegal. She attended Whittier Law School while working and graduated in 1996. She has handled numerous trials and evidentiary hearings in family law matters and candidly described her jury trial experience as "limited, yet noteworthy." Sutherland explained that following a seven-week jury trial in 2011 she obtained a $4.9 million jury verdict on behalf of her client against the Orange County Social Services Agency. Bonilla submitted no evidence to counter Plaintiffs' evidence regarding reasonable hourly rate. The trial court awarded attorney fees of about $1.7 million based on an hourly rate of $700, which was about 2 and a half times the rate billed to clients.
Sutherland declared that she billed clients at the rate of $345 per hour but that rate was "way under market for my level of knowledge, skill, and experience." She stated in her declaration that her billing rate of $345 below is low and she keeps it low because she does a lot of family law, "where finances are strained and the economics of scale are working in the wrong direction." This litigation was not a family law matter but a business litigation matter, for which hourly rates are typically much higher. She nevertheless gave Plaintiffs a 30 percent discount off that rate, so the actual billing rate was $241.50 per hour. In addition, Sutherland billed "only half of numerous blocks of time."
Sutherland submitted the Laffey Matrix which, though not binding, is evidence supporting the rate she had requested. (See, e.g., Syers Properties III, Inc. v. Rankin, supra, 226 Cal.App.4th at p. 702 [finding no abuse of discretion in employing Laffey matrix in San Francisco litigation].) "The Laffey Matrix is a United States Department of Justice billing matrix that provides billing rates for attorneys at various experience levels in the Washington, D.C., area and can be adjusted to establish comparable billing rates in other areas using data from the United States Bureau of Labor Statistics." (Pasternack v. McCullough (2021) 65 Cal.App.5th 1050, 1057, fn. 5.)
According to the Laffey Matrix, the reasonable hourly rate for the period of June 1, 2021 through May 31, 2022 for an attorney, such as Sutherland, who has been out of law school for 20 or more years was $919. Sutherland requested that her hourly rate be set at $724.50, nearly two hundred dollars lower than the Laffey Matrix rate. Rates for civil litigators in Orange County handling complex business litigation might not be as high as the rates for their counterparts in Washington D.C., but Orange County is now a large and sophisticated metropolitan area with litigation and litigation attorneys on par with those in the largest cities.
In Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, the Court of Appeal held that the trial court abused its discretion because the fee claimant's unrebutted evidence "compelled a finding that the requested hourly rates were within the reasonable rates for purposes of setting the base lodestar amount." (Id. at p. 156.) In so holding, the Court of Appeal noted "there is no indication that in ascertaining the reasonable hourly rate, the court engaged in the relevant objective analysis: to determine the prevailing rate in the community for comparable professional legal services." (Ibid.)
An attorney's skill is a factor in fixing a reasonable hourly rate, and the trial court, who observed Sutherland try this case, is deemed to be better able than we are to assess her skill. We do note that Sutherland obtained a jury verdict for her clients of $980,988.83 and, by defeating Bonilla's claim that the investment contracts were loans, opened up the potential for hundreds of thousands of dollars in payments out of the Market's future net profits.
C. The Trial Court Cut an Unreasonably Large Amount of Counsel's Time
The trial court awarded Plaintiffs $164,185 for time spent by Sutherland.
At an hourly rate of $345, that court allowed recovery for 475.9 hours of her time. Sutherland declared that through entry of judgment she had spent 1,041 hours litigating and trying this matter and of those hours had charged Plaintiffs 721.7 hours. In the motion for attorney fees, Plaintiffs requested a fee award of 721.7 plus half of the unbilled hours for a total of 881.7 hours.
The number of hours for which recovery of fees was permitted represented a reduction of 565.1 hours from the number of hours billed by Sutherland (1,041 -475.9), 245.8 hours from the number billed to Plaintiffs (721.7 - 475.9), and 405.8 hours from the number for which fees were requested (881.7 - 475). The reductions by percent are, respectively, 54.3 percent, 34 percent, and 46 percent.
The trial court gave the following reasons for reducing the number of hours: "Plaintiffs' billing entries in Exhibit B to Sutherland's declaration are convoluted, confusing, and difficult to follow in large part because of Plaintiffs' counsel's modifications made to the billing entries. Perhaps counsel was attempting to heed the oft repeated admonishment of Guillory v. Hill [(2019)] 36 Cal.App.5th [802,] 812 ('counsel must "prune the fee request to comply with the law" instead of trying "to transfer that responsibility onto the trial court." [Citation.]'). In any event the court finds that a downward adjustment is appropriate for inefficiency, duplicative billing entries, excessive billing entries, padding, block billing, non-legal tasks, and vague and non-descriptive billing entries. Indeed, some of the bills appeared to have billed for the same time twice (e.g., billing for trial time and for tasks done during trial time while waiting for jurors). There were also excessive conferences and emails among attorneys, with clients, and with the receiver and receiver's counsel in a different case.... Attorney's fee incurred for time spent on motions in limine that were never filed, tendering the Cross-Complaint to Plaintiffs' liability insurer, and monitoring a different case . . ., were not reasonable or necessary."
The trial court did not have a reasonable basis for cutting the number of hours to the extent it did, and the court's factual findings are not supported by substantial evidence. We have reviewed in full counsel's billing statements which are attached as exhibit B to Sutherland's declaration. We conclude those statements are not convoluted, confusing, or difficult to follow. The billing statements do not support the court's findings. The descriptions of tasks performed are more than adequate. Counsel's voluntary reduction in hours should be lauded, not punished.
We also disagree with the trial court's conclusion regarding block billing. (See Mountjoy v. Bank of America, N.A. (2016) 245 Cal.App.4th 266, 279 [Court of Appeal disagreed with trial court's finding that attorneys had block billed their time].) Block billing occurs when "a block of time [is assigned] to multiple tasks rather than itemizing the time spent on each task." (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 1010.) Exhibit B does include some block billing and "trial courts are granted discretion 'to penalize block billing when the practice prevents them from discerning which tasks are compensable and which are not.'" (In re Marriage of Nassimi (2016) 3 Cal.App.5th 667, 695-696.) But the block billing in this case presents no such problem since there were all claims presented to the jury which were subject to the attorney fees provisions.
The trial court identified three tasks which, it concluded, were not reasonable or necessary for the litigation: (1) "time spent on motions in limine that were never filed"; (2) "tendering the Cross-Complaint to Plaintiffs' liability insurer"; and (3) "monitoring a different case." All of those tasks were reasonable and/or necessary. In civil litigation, preparation for trial often includes performing tasks, such as preparing motions in limine, that ultimately might become unnecessary. (See Vargas v. Howell (9th Cir. 2020) 949 F.3d 1188, 1194, 1198 [fees awardable for "dead ends" and unfiled motions].) Bonilla filed a cross-complaint against Plaintiffs; tendering that cross-complaint to their insurer is a necessary task. The "different case" that was being monitored was Bonilla's lawsuit against his brothers, which is directly related and relevant to this case.
Exhibit B does reflect a large number of conferences and e-mails among attorneys, clients, and the receiver. The receiver was the receiver for Bonilla's lawsuit against his brothers. Communications between attorney and client are not only reasonable and necessary, its required. Keeping clients informed should be rewarded, not punished. We shall, however, defer to the trial court's finding that the number of conferences and e-mails was excessive. The time billed for each of these conferences and e-mails was nearly always just one tenth of an hour. Thus, the number of conferences and e-mails, even if excessive, did not support the court's dramatic cut in the number of compensable hours. There was some duplication of work and inefficiency too. But a haircut was in order, not a decapitation.
Although Plaintiffs' counsel did spend a lot of time litigating this matter, the appellate record shows this to have been a fairly difficult and hard-fought case, and it culminated in an eight-day jury trial. As Plaintiffs point out, Bonilla's litigation tactics drove up the attorney fees. Bonilla forced Plaintiffs to defend a cross-complaint and to litigate 28 affirmative defenses and then withdrew them at trial. Nearly every effort, action, and motion made by Plaintiffs was vigorously and often viciously opposed. The record shows that Bonilla made a calculated decision to go to trial rather than pursue settlement. Plaintiffs won: The jury awarded them damages totaling $980,988.83 and by defeating Bonilla's claim that the investment contracts were loans, may receive hundreds of thousands of dollars in payments out of the Market's future net profits. (See Moreno v. City of Sacramento (9th Cir. 2008) 534 F.3d 1106, 1111 ["By and large, the court should defer to the winning lawyer's professional judgment as to how much time he was required to spend on the case; after all, he won, and might not have, had he been more of a slacker"].) Just eyeballing the appellate record and the jury verdicts indicates the amount of attorney fees awarded was unreasonably low.
Although it has been said that "'[t]he "experienced trial judge is the best judge of the value of professional services rendered in [their] court"'" (PLCM, supra, 22 Cal.4th at p. 1095), the court's judgment is subject to appellate review and may be reversed if it is clearly wrong (ibid.). In the present case, the trial court's determination of the amount of attorney fees awarded to Plaintiffs is clearly wrong.
DISPOSITION
The order denying declaratory relief, the charging order, and the order granting attorney fees are reversed. The judgment is otherwise affirmed. The matter is remanded with directions to the trial court to do the following: (1) grant declaratory relief on the issues raised by Plaintiffs' declaratory relief cause of action; (2) modify the charging order to include distributions made to Bonilla from the Partnership Lawsuit Judgment; and (3) award Plaintiffs attorney fees in an amount that conforms to the principles and guidelines set forth in this opinion. Plaintiffs shall recover costs on appeal.
WE CONCUR: GOETHALS, ACTING P. J. DELANEY, J.